Buyers of luxury goods cagey as outlook remains cloudy

 Mumbai/New Delhi/Bangalore: For Vishal Sawhney, who regularly buys luxury brands such as Burberry, Armani and Louis Vuitton in India, increased prices of imported goods due to the rupee’s depreciation has had an indirect impact.

“I won’t defer my purchase of a luxury item because of price hikes,” he said. The reason Sawhney, 26, is postponing buying decisions is the cloudy outlook. “It’s the overall market sentiment that is negative. Therefore, I’m being conservative towards luxury purchases right now,” said Sawhney, who helps run a family business in New Delhi.

In the past 12 months, the rupee has fallen around 24% against the dollar. Besides the slump in the currency, the latest growth numbers don’t leave much room for optimism either. High inflation, global uncertainties and an increase in excise duty have also cast a pall of gloom.

“The luxury sector thrives on sentiment, and the feel-good factor is going away. This impacts the sector,” said Darshan Mehta, chief executive officer, Reliance Brands Ltd, the retail unit of Reliance Industries Ltd. It sells brands such as the century-old Italian menswear luxury brand Ermenegildo Zegna.

Strictly speaking, possessing a Hermes Birkin bag, Christian Louboutin heels, a Ducati motorcycle, or cars made by Ferrari and Maserati has little to do with the price tag, say the experts.

“These are products which people aspire to buy, and when they finally decide to make this purchase, short-term fluctuations do not lead to a change in decision,” said Ashish Chordia, chairman, Shreyans Group, which imports Ducati, Ferrari, Maserati and Bombardier Recreational products to India. “They may choose to delay a purchase, but there is rarely a cancellation.”

Nigel A. Harwood, president and chief executive officer, InterGlobe Established Pvt. Ltd, agrees with Chordia.

“The queries coming in for our products haven’t dropped, but customers are waiting for the rupee to improve,” he said. “It’s not like we are expecting the rupee to touch 47 or 48, but people are even waiting for it to move from 55 to 50,” said Harwood.

His company deals in cars such as the Koenigsegg Agera, besides yachts and aircraft ranging from Rs 50 lakh to Rs 150 crore. There’s been a 10-15% increase in the price of these high-end products because of the rupee’s slide, he said.

India’s luxury market was estimated at $5.75 billion in 2010, growing to $14.72 billion by 2015, according to the India Luxury Review 2011 by industry lobby Confederation of Indian Industry and consultancy AT Kearney.

The delay in purchase decisions is hurting retailers’ plans to step up investments as they seek to add capacity.

“The depreciation of the rupee as well as the overall macroeconomic scenario do dampen some of the enthusiasm by luxury retailers to expand their operations in India,” said Anuj Puri, chairman and country head, Jones Lang LaSalle India, a property consultant. “They would (rather) wait for these dynamics to become more favourable before they expand their footprint.”

For retailers who haven’t yet raised prices, the depreciating rupee is putting stress on margins. “Right now, the impact hasn’t been passed on to consumers and the entire impact is being borne by retailers, shrinking our margins,” said Yashovardhan Saboo, founder of Ethos Summit, a luxury and premium watch retail chain selling the Cartier, Chopard and Breitling brands in India. Ethos, though, has increased prices across some brands in the past few months and plans to raise more in the coming months.

For some companies, raising prices in response to the slump in the rupee isn’t easy, hitting margins.

“We don’t have the ability to pass it on to the consumer as it’s a state-by-state decision,” said Abanti Sankaranarayanan, deputy managing director, Diageo India, the maker of brands such as like Johnnie Walker whisky, which is imported.

Meanwhile, some value-conscious, non-resident Indians are actually looking at the depreciating rupee as an opportunity to shop.

“A consumer called me from the US. He wanted to buy an Omega watch for his wife,” said Saboo. “The watch costs $2,500, but because of the exchange-rate fluctuation, and the fact that brands hadn’t yet raised prices in India, it was working out cheaper here, and he decided to buy it from here.”